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    Investment security analysis

    Investment is commitment of funds in the expectation of some positiverate of return. These funds are to be used by another party, user of fund, for productive activity. It can be giving an advance or loan or contributing to the equity (ownership capital) or debt capital of a corporate or non-corporate business unit. In other words, investment
    means conversion of cash or money into a monetary asset or a claim on future money for a return. 

    This return is for saving, parting with
    saving or liquidity and lastly for taking a risk involving the uncertainty about the actual return, time of waiting and cost of getting back funds, safety of funds, and risk of the variability of the return.

    Investment in capital market is made in various financial instruments, which are all claims on money. These instruments may be of various
    categories with different characteristics. These are all called securities in the market parlance. In a legal sense also, the Securities Contracts Regulation Act, (1956) has defined the security as inclusive of shares, scrips, stocks, bonds, debentures or any other marketable securities of a like nature or of any debentures of a company or body corporate,
    the Government and semi-Government body etc.

     It includes all rights and interests in them including warrants, and loyalty coupons etc.,
    issued by any of the bodies, organisations or the Government. The derivatives of securities and Security Index are also included as securities in the above definition in 1998.. 

    In the strict sense of the word, a security is an instrument of promissory note or a method of borrowing or lending or a source of contributing to the funds needed by a corporate body or non-corporate body. Private security for example is also a security as it is a promissory note of an individual or firm and gives rise to a claim on money. But such private securities or even securities of private
    companies or promissory notes of individuals, partnerships or firms to the extent that their marketability is poor or nil, are not part of the
    capital market and do not constitute part of the security analysis.

    Innutshell, securities are financial instruments that have been created to represent a legal obligation to pay a sum in future in return for the current receipt of value. Securities thus represent the cash equivalent received from another person.. 

    Definition of security analysis: For making proper investment involving both risk and return, the investor has to make a study of the alternative avenues of investment– their risk and return
    characteristics and make proper projection or expectation of the risk and return of the alternative investments under consideration. 

    He has to tune the expectations to his preferences of the risk and return for making a proper investment choice. The process of analysing the
    individual securities and the market as a whole and estimating the risk and return expected from each of the investments with a view to identifying undervalued securities for buying and overvalued securities for selling is both an art and a science and this is what is called security analysis.

    Security Analysis in both traditional sense and modern sense involves the projection of future dividend, or earnings flows, forecast of the
    share price in the future and estimating the intrinsic value of a security based on the forecast of earnings or dividends. Thus, security analysis
    in traditional sense is essentially an analysis of the fundamental value of a share and its forecast for the future through the calculation of its intrinsic worth of the share.

    Modern security analysis relies on the fundamental analysis of the security, leading to its intrinsic worth and also risk return analysis depending on the variability of the returns, covariance, safety of funds and the projections of the future returns. If the security analysis is based on fundamental factors of the company, then the forecast of the share price has to take into account inevitably the trends and the scenario in the economy, in the industry to which the company belongs and finally the strengths and weaknesses of the company
    itself- its management, promoters’ track record, financial results, projections of expansion, diversification, tax planning etc. all these studies are only a part of the total security analysis that the investor

    should aim at.

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